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Chile’s economic stability and the strengthening of its foreign relations have increased the disposable income of its population, which adds up to good news for retailers.

Chile has become one of the world’s most attractive countries for retailers. It placed third for retail development in a 2011 study of 30 emerging countries, moving up three places from 2010. With Brazil and Uruguay ranked first and second respectively, and Peru eighth, South America had four countries in the top 10 for the first time.

“The region is ready for that next wave of modern retail growth,” says Hana Ben-Shabat, a partner at management consulting firm A.T. Kearney, which has conducted the study for ten years.

With a population of almost 17 million, Chile’s economy grew at a 9.8% annual rate for the three months ended March 31, 2011, compared with 6.8% for Uruguay and 4.2% for Brazil. Chile’s retail sales are forecasted to grow 14.5% by 2015, from $53 billion in 2011 to $61 billion, according to Business Monitor International.

Chile’s retail sector is growing because of high consumer spending power, well developed physical infrastructure, a business-friendly regulatory environment and large urban population. Almost 88% of Chileans live in urban areas, with 40% in the Santiago metropolitan area alone. In 2009 about 44% of supermarket sales were in the metropolitan area. By 2015, more than 90% of the country’s population will live in urban areas.

Strong growth is forecasted across all retail sectors up to 2015, including food and drink, mass grocery retail, over-the-counter pharmaceuticals and automobile sales. With GDP per capita higher than in Argentina or Brazil, Chile’s consumer electronics markets is one of the most sophisticated in Latin America. Sales here are forecast to rise nearly 36% to more than $3.23 billion by 2015.

Along with sales, employment figures are also rising. By the end of 2011, the supermarket industry foresaw 10,000 new jobs being created due to growing demand, a 9% increase over 2010.

Chile’s retail market is highly concentrated with five chains dominating 60% of sales. Cencosud and Walmart lead the supermarket industry. Walmart entered Chile in 2009 and now has almost 300 stores there.

“We were aware of Chile’s political, economic and institutional stability as an incentive for foreign investment and of its interesting network of bilateral trade agreements with a wide range of countries,” says Eduardo Solórzano, President and CEO Walmart Latin America. “This made Chile the right place to invest.”

The department store sector is dominated by Falabella, Almacenes Paris (part of the Cencosud group) and Ripley. La Polar is also a dominant player but it has had financial trouble and shares in the company fell significantly in 2011.

While Chile has become one of Latin America’s most promising retail markets, foreign companies may encounter hurdles there. High levels of growth may be offset by consumer credit volatility. In addition, outside of the largest cities, the population is largely rural, which limits expansion opportunities.

Still the country is a big enticement for foreign retailers. Besides Wal-Mart, Gap, the largest U.S. clothing chain, opened its first store in Latin America in Santiago in October. The store opened the same week Gap revealed plans to close 189 stores in the U.S.

“Chile is a great match for Gap brand’s aesthetic and target customer,” said Stefan Laban, Managing Director of Strategic Alliances for Gap Inc. “With a nearly $6 billion apparel and footwear market, a retail sector that makes up 9.4% of the country’s GDP, and a proven customer base interested in American style and brands, Chile represents a natural extension for our brands.”

But because of the concentrated market, some Chilean chains are expanding regionally. Several retailers have opened stores in Peru, including Cencosud (64 supermarkets and hypermarkets) Ripley (15 stores) and Falabella (57 supermarkets and stores).

Other Chilean companies have already opened shop in Colombia including Falabella, Cencosud, LAN Airlines, and fuel and forestry conglomerate Copec. ●

Fulfilled expectations

Walmart, the leading supermarket chain in the U.S., made its debut in Chile in 2009 after acquiring a majority stake in the local D&S chain. This was the largest foreign investment materialized in Chile in 2009. Walmart now has almost 300 stores in Chile. Eduardo Solórzano, Walmart’s President and CEO for Latin America, responds to questions about the company’s experience in Chile.

Q: What was Walmart’s impression of Chile before entering the market?

A: We had a very good opinion of Chile. We were aware of its political, economic and institutional stability as an incentive for foreign investment and of its interesting network of bilateral trade agreements with a wide range of countries. Together with its solid macroeconomic fundamentals, its business climate and its open and competitive economy.

Q: What were the key factors for Walmart’s decision to invest in Chile?

A: In D&S we found a solid, stable and serious company, with corporate values similar to ours, which promised to facilitate the future integration of the two companies. In addition, Chile offered excellent conditions in terms of a propitious economic and institutional environment for doing business.

A: The decisive aspects included its political, economic and social stability, together with the respect that exists for government institutions and the role they each fulfill. In addition, Chile’s growth rates over the past two decades, accompanied by controlled inflation, are an undeniable attribute for any investor.

Q: In retrospect, how do you evaluate your venture through D&S?

A: Very positively because it has fulfilled our expectations. We are happy with the decision we took three years ago and have found very good conditions for the development of our projects, which will allow us to continue growing through innovative and sustainable initiatives.